The finance ministry has set specific targets on a range of financial parameters that the public sector banks have to achieve over the next four years.
Bankers say such a diktat is unprecedented and a departure from the practice of allowing banks to decide their own growth path.
According to bankers, the ministry has set targets on current and savings account deposits, return on asset, net profit per employee, cost to income ratio, market share, staff ratio and asset quality, among other things.
The finance ministry wants the boards of the respective banks to approve the plan before submitting it to the ministry.
| THE AREAS IN WHICH GOVT BANKS NEED TO IMPROVE: |
| * Current account and savings account deposits |
| * Return on asset |
| * Net profit per employee |
| * Employees’ cost-to-income ratio |
| * Other-cost-to-income ratio |
| * Market share of deposit, advances |
| * RBI’s Capital, Asset quality, Management, Earnings, Liquidity, and Systems & controls (CAMELS) rating |
| * Staff ratio at branches |
| * The proportion of outstanding non-performing assets in total NPAs in the last two years |
It also wants to organise a grand ceremony with all the banks together where memoranda of understanding would be signed.
The move comes at a time when the government has been estimating banks’ capital requirement over the next eight to 10 years. The finance ministry maintains that the government is committed to providing adequate capital to banks so that their growth is not hurt.
In a note written to banks, the finance ministry said it wanted them to achieve 60 per cent of the target in the first two years — 2012 and 2013 — and the remaining in the last two years, that is, 2014 and 2015.
“Regarding current and savings account deposits, we have been asked to increase those to 40 per cent of total deposits by 2015. This is a stiff target, given that most banks are not even close to the 40 per cent mark,” said the chairman and managing director of a public sector bank, requesting not to be identified. Among government banks, apart from State Bank of India and Punjab National Bank, no other bank has 40 per cent Current and Savings Account (Casa) ratio at present.
The ministry also wants banks to increase return on assets to 1.5 per cent by 2015. According to the Reserve Bank of India data, public sector banks’ return on asset stood at 0.96 per cent in 2010-11, while it was 1.51 per cent for new private sector banks.
The government also wants banks to deploy more manpower at their branches. They are required to dedicate 80 per cent of their work force to branches and the rest to offices.
There had been instances of moral policing and persuasion by the government over interest rate increases or decreases but the final decision-making power had always been with the banks.
